Insolvency of FTI Likely to Leave No Followers in Its Wake
Struggling FTI Whilst Others Smash Sales Records - No Cause for Worry Says Tourism Expert
FTI bumping in the dust, others in the travel industry are breaking records - a paradox? Not according to a tourism researcher. FTI is an unique case, he says. The travel sector, having weathered its fair share of crises, isn't about to crumble now. No panic needed.
Before its downfall, FTI boasted impressive sales figures - a supposed 4.1 billion Euros in revenue during the 2022/2023 fiscal year. Impressive, yes, but not particularly valuable in the travel industry, as most of it remains just a minuscule fraction, if anything.
In its last publicly available balance sheet from 2021/22, FTI reported a turnover of 3.7 billion Euros, but a loss of over 90 million Euros. This red figure, of course, has something to do with the company's hefty debt. Even healthy corporations often see a considerable gap between turnover and profit, such as the largest German travel organizer, TUI, which reported a turnover of 20.7 billion Euros in 2022/23 and a profit of just around 1 billion Euros.
"FTI is a special case," asserts Torsten Kirstges, Professor of Tourism Economics at Wilhelmshaven Jade University, in an interview with Capital.
"Companies like FTI, dealing in travel packages, agencies, and organizers, have often been deemed unsustainable, but nothing of the sort has transpired so far. The industry is resilient and won't collapse further due to the lingering crises." In fact, travel demand post-pandemic is skyrocketing, and other organizers are setting new sales records.
FTI's Trust Levels Plummeted
What's left for FTI in the end is largely what they add to the travel price themselves. Travel organizers often purchase contingents from providers of individual services such as hotels, airlines, and bus companies. They can use these services until a certain point before travel and then construct a comprehensive trip from the individual components, which they sell as a package to the end consumer.
"The margin for travel organizers typically ranges between 25 to 30 percent of the travel price, assuming the packaged tour is well-calculated and the organizer is competitively positioned in the market," clarifies Kirstges. From this, travel agency commissions are deducted. The net margin often amounts to around 10 percent. For FTI, it was presumably even lower.
"FTI took a gamble with lower prices than its rivals, thus likely enjoying a slimmer margin. This aggressive pricing strategy is catching up with them now." This approach could only be sustained if a significant volume was generated, and FTI failed to do so in recent years.
In contrast to its competitors, FTI failed to capitalize on the strong travel demand, seemingly due to massive trust issues. Trust issues at travel agencies might have been a result of a data scandal involving the sharing of booking and competition data. Furthermore, negative headlines about the company likely exacerbated its financial woes and troubled history, including the pre-trial detention of former managing director Ralf Schiller, which became public in early 2023.
"I've been asked by colleagues in travel agencies if they can still sell FTI," said Marija Linnhoff from the Association of Independent Travel Agencies (VUSR) in February to Capital. "Last year, they all sold it, but now it's only when the customer specifically requests it."
Missteps and pandemic led to demise
Hoteliers in popular destinations likely saw FTI as an untrustworthy partner and started demanding advance payments, while organizers usually pay after the guest's stay. Reports suggest that intermediaries demanded up to 200 million Euros from hoteliers.
Strategic blunders in FTI's history and the Coronavirus pandemic are thought to have contributed to its downfall, according to Kirstges. However, this insolvency isn't a harbinger of the end for travel agencies or even the travel industry, in his opinion. Instead, the market will consolidate, and other travel agencies will fill the void left by FTI. This shift is already underway.
"Booking through a travel agent isn't necessarily more expensive than doing it yourself, because the travel agent benefits from economies of scale and secures better deals than an individual," says Kirstges. Plus, there's insurance coverage in the case of insolvency, like with FTI, when booking through a travel agent, with the German Travel Security Fund DRSF.
The text first appeared on Capital.de
